* China data adds to evidence of recovery
* Euro selling on Moody's downgrade of rescue funds unwound
* Euro faces major technical resistances at $1.3050
* Aussie slips after retail sales data
* Net yen short positions at 5-yr high
By Hideyuki Sano
TOKYO, Dec 3 The euro hit a six-week high
against the dollar on Monday as upbeat data on the Chinese
economy boosted risk sentiment, reversing earlier losses
triggered by a credit downgrade of the euro zone rescue funds
late last week.
Despite encouraging Chinese manufacturing surveys, however,
the Australian dollar dipped as disappointing local retail sales
cemented expectations that the Reserve Bank of Australia will
cut interest rates on Tuesday.
"The market was initially cautious on the euro after the
credit downgrade of rescue funds. But sellers are being forced
to buy it back now," said a trader at a Japanese bank.
The euro rose to as high as $1.3048, its highest level since
Oct 23 and last stood at $1.3028, up 0.3 percent from
late U.S. levels last week.
It has important resistance levels at around $1.3050,
including a long-term trendline connecting its peak hit in April
and August of 2011 as well as a 76.4 percent retracement of its
decline from September to November this year.
The final reading for the HSBC China Purchasing Managers'
Survey (PMI) rose to 50.5 in November from 49.5 in October,
suggesting the pace of activity in its manufacturing sector
quickened for the first time in 13 months in November.
The findings, coming after China's official PMI published on
Saturday also rose, boosted hopes of recovery in the world's
second-biggest economy, although there were signs Beijing is
still relying too heavily on state-led investment rather than
the private sector.
The euro initially fell in Asia after Moody's cut its rating
on the European Stability Mechanism (ESM) to Aa1 from Aaa on
Friday, keeping a negative outlook.
It also lowered its provisional rating on the European
Financial Stability Facility to (P)Aa1 from P(Aaa), citing a
recent downgrade of France's sovereign rating.
Traders said short-covering in the euro was active
particularly against the Australian dollar, which was hit by
soft retail sales data.
The euro rose more than 0.7 percent against the Aussie to
hit one-month high around A$1.2530.
Against the U.S. dollar, the Aussie fell 0.3 percent to
$1.0400, falling as low as $1.0393 at one point.
GOING OVER THE CLIFF
"My vague feeling at the moment is the euro could rise
gradually in line with shares on receding worries over the U.S.
fiscal cliff, Greece and southern Europe, as policymakers kick
the can further," said a trader at a European bank.
Still, any further recovery in the euro is more likely to be
choppy than steady, given that there will likely be more twists
and turns in the debt saga in both United States and Europe.
Later on Monday, Greece plans to unveil details of a bond
buy-back crucial to efforts by foreign lenders to trim the
country's ballooning debt, hoping the terms will draw enough
investors and unblock vital aid.
On the other hand, with less than a month left before sharp
fiscal tightening is due to set in, there was little apparent
progress in talks to mitigate its impact on the U.S. economy.
Treasury Secretary Timothy Geithner said on Sunday that he
"can't promise" that the United States won't go over the cliff,
insisting it is up to congressional Republicans.
"Resolution of the U.S. fiscal cliff still seems some way
off, and it is increasingly likely that a comprehensive
agreement will be delayed into the new year, meaning the economy
may go over the cliff in January only to be hauled back up again
soon after," said Simon Hayes, analyst at Barclays Capital.
Concerns that the looming avalanche of tax hikes and
spending cuts could push the U.S. economy into recession helped
the yen stay above a 7-1/2-month low hit last month against the
The dollar shed about 0.2 percent to trade at 82.33 yen
, falling further from last month's peak of 82.84 yen.
The yen has been under pressure on expectations that a
likely change in Japan's government later this month would lead
to aggressive monetary easing.
Data from U.S. regulator showed on Friday speculators bets
against the yen rose to the highest level since mid-2007 last
week at 79,466 contracts.
Ever since the global financial crisis in 2008, their net
yen selling has always peaked around 60,000 contracts, so some
market players suspect their yen selling might have already ran
But Osamu Takashima, chief FX strategist at Citibank in
Tokyo, said that may no longer be the case.
"Speculators' net euro short positions have shrank to about
a third of its peak, which could suggest they still have
capacity to take risk overall. I don't expect their net yen
short positions to rise around the record peak around 200,000
contracts but speculators may have a deeper pocket than you
would think," he said.